Starbucks Coffee Company
We're going to do some case studies. Today's case study is "Starbucks". The first thing we're going to learn is that during growth, big or small, replication is everything - whether you're replicating your product, whether you're replicating the experience of the customer buying it, or the experience of the customer using it. Replication is everything, and you don't have to be a multi-billion dollar company like Starbucks to experience that for your own company.
Starbucks Corporation, an American company founded in 1971 in Seattle, WA, is a premier roaster, marketer and
retailer of specialty coffee around world. Starbucks has about 182,000 employees across 19,767 company
operated & licensed stores in 62 countries. Their product mix includes roasted and handcrafted high quality -premium priced coffees, tea, a variety of fresh food items and other beverages. They also sell a variety of
coffee and tea products and license their trademarks through other channels such as licensed stores, grocery and
national service accounts.
Beginning with the Core competition
So let's start. Let's go back a little bit. A guy names "Howard Schultz" was the CEO of Starbucks. And he was the CEO from 1987 - 2000. Then, after that 13-year run, where we all saw Starbucks cropping up everywhere - a little Starbucks in airports, a kiosk with Starbucks in the mall, they were everywhere. And Howard stepped back to be chairman after that 13-year run. Over the next six years, it continued to grow and expand, and then in 2006, as chairman, he's looking around and seeing that things we're the way they used to be. So he decides to dive into it. During this time of rapid growth, there was a lot of envy. McDonald's and Dunkin Donuts introduced their own coffee and Consumer Reports had run this study in 2000, I believe it was, where the American consumer actually said that "they thought the McDonald's new coffee tastes better than the Starbucks' coffee". Which of course was a terrible thing to hear if you're Starbucks because you wanted to give you and me that perfect cup of unique,great coffee, and be able to charge us five bucks and a cool cup that has a picture of a lady with a fish coming out of each ear. So, to hear that from McDonald's kind of flips them out. And so he's disappointed that that would be, in a great location,in a great atmosphere, and a great experience. So he sits there and says, "You know, I've got to look into this."
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| Dunkin Donuts |
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| Mcdonald's |
Networth and the Comparativity
Starbucks primarily operates and competes in the retail coffee and snacks store industry. This industry
experienced a major slowdown in 2009 due to the economic crisis and changing consumer tastes, with the
industry revenue in the US declining 6.6% to $25.9 billion. Before this, the industry had a decade of growth
consistent. Due to the economic slump, consumers spent less on luxuries like eating out, choosing to purchase
low-price items instead of high-priced coffee drinks due to shrinking budgets.3
The industry grew at a low
annualized average growth rate of 0.9% from 2008 till 2013 with current industry revenues at $29 billion in the
US. The industry is now forecasted to grow at an annualized rate of 3.9% over the next five years, with a potential
to reach $35.1 billion revenues in the US.
This growth would be mainly driven by an improving economy,
increase in consumer confidence and expanding menu offerings within the industry. Starbucks dominates the
industry with a market share of 36.7%, Dunkin Brands with 24.6% and other competitors like McDonalds, Costa
Coffee, Tim Horton’s etc.
Starbucks had total revenue of $14.89 billion as noted in the survey of of
September 29th
, 2013.
One day Schultz goes on a vacation. On vacation he brings all kinds of reports and things with him, and he dives into it. And here's what he found out. In the locations, he was seeing store staff,he thought they were busier, just being busy, than giving that greeting and that perfect experience to people coming in to get that Starbucks' coffee. And we all have our favorites. the very famous is triple ven-ti, non-fat white chocolate-latte, easy whip. Well, he wanted people to enjoy making those,and give experience to me, while I'm waiting for my name to be called, that I'd come back tomorrow. It's not just ordering it, like fast-food coffee; it's the experience, being in a cool place, with the music playing, the aroma of coffee, and he felt that that had been lost. It was a bunch of busy people. Worse, he noted that in some locations, they were running out of things in the afternoon. "I'm sorry, we can't make a chai-tea latte for you." Why? "Well, it's 3:00 in the afternoon, and we've run out." He said, "This is terrible. You know, I want people through the whole part of the day to be able to get it." Well in the rapid growth, they found there was one thing they could do perfectly. Order the same furniture, the same paint,the same decor, and make the same storefront over here as they did over here. But along the way, what was inside, was a company that was very busy, the supply systems as the company grew didn't get the supplies to each location, so that they were there to make every drink all day, every day. And, as they hired and trained people, they were good, well-meaning, nice people, but they weren't giving the same experience to you and me that Howard Schultz envisioned. So he said, "That's it. I'm coming back in. And I'm going to come back and be the CEO again."
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| Starbucks flavoured coffees. |
Starbucks Key Strategies
So Howard Schultz comes back, and he wants to build it and he wants to build it right. And it's really a rebuild. So Howard Schultz reengages, comes back in,and says, I've got a plan. And my plan is to re-establish the original promise of Starbucks - the promise of a great location, with music, and neighborhood atmosphere,the promise of wonderful people making you the coffee, making you feel like they remembered you, and the promise of that beautiful cup of coffee, with all the extra pizzazz they put on it with all the lattes and all the combinations they offer, being that great,wonderful, not just a morning-wake-me-up coffee, but my personal coffee made my way, by people that I know and care about it. So the whole 360 degree experience from the product to purchasing it, to being treated at the store, to the atmosphere was exactly what they originally envisioned. To get back to that, he said, "We've got work to do." Because we've grown so big, we've got to work on our supply stuff, and He'll let the supply people figure out how to make sure that we have enough coffee, enough milk, enough everything, every day, to make any drink, any time.
One of the key strategy that Starbucks followed since its inception is that of product differentiation offering
differentiators such as premium product mix, locations, coffee beverages reputation and supreme customer service
that translated to building a premium valued brand which is costly to imitate for competitors. Starbucks has also
followed a shrewd strategy of strategic alliance and making smart acquisitions. Starbucks didn’t follow
franchising model and operated company oriented stores and joint ventures in international markets. Starbucks
has made some key acquisitions such as Teavana (Tea products), Bay Breads (premium bread products),
Evolution Fresh (fresh juice products) etc. to use the product diversification strategy. . Another
crucial strategy for Starbuck’s growth has been its international strategies of expanding into key developed and
emerging markets to geographically diversify, and it has been highly successful with operation spanning 60
countries. All these strategies have derive considerable competitive advantage for Starbucks over its competitors.
The Evolution Begins
He'll let them worry about that. What I want to worry about is the experience. And one of the things he turned to was how the coffee was made. And in a bold move, in 2008, he announced every Starbucks in the United States is closing for three hours, in the middle of the day. And during those three hours, there's going to be a sign on the door that says, "Hey, we're retraining all of our staff to make these drinks, these coffees, the espresso, the way we intended it, the way it was visualized when I birthed the company in Seattle." And that's what he did. And on that afternoon, it was headline news all across the United States. All of Starbucks closes for three hours, to train the people. You know, think about that. How many CEO's would have the guts to close their company, in the middle of the work day, and to sacrifice those sales dollars, so that they could ensure that from that moment forward, everybody would have a great experience. We're sitting here in the middle of an election year, where denial and twisting the truth seems to be the currency of the day. And instead, he boldly goes out, and instead of saying, "Oh, nothing's wrong, nothing to see here," he's saying, "You know what? We need to take a pause, and we need to get it right." And I think that was just a gutsy move. But it's a move that you and I can apply to our companies, too, when you think about it. You know, we can stop everything and take a step back to get it right for our customer at any time. And I think that's probably one of the first lessons here. As we move forward, he also wanted to review the making of the coffee itself, in terms of the machines. They upgraded the machines, to new machines that actually created more aroma to give more atmosphere to the location. They focused on customer service.
 
They moved into social media, and they also did a couple things involving these brand new things that were really catching on back in those days, the app. And in the app they allowed people to buy with their app, to get points for having bought every day on their app, and the gift card through apps. So they focused on digital technology to bring themselves forward with the way you and I operate, at the same time taking a step back to deliver the original promise of what they had envisioned in that first place in Seattle. The reason that they were concerned about this, the core reason that I've talked about is replication. Now let's take a look at something real quick. So I made a little chart for us here. Could you look at my chart? So, basically, let's start over here. We all want this. Up the chart, making money, smiling. And whether this is the stock market, or this is your savings account, we all want to go up and to the right, to a happy place, with more money tomorrow than we have today. Well, that's the stock market. And Starbucks is on the stock markets. So they had shareholders, and that's where they knew they needed to go. That's where they're going every year. They've got to deliver that. Well, now you say why replication? Well, replication builds momentum, if you do it right. Because you build more Starbucks that are giving great experiences, you build momentum, that's why you do it, and that's how you get here [up and to the right]. It all starts with training, how you train people, and the systems, what you train. The who - there's always two who's. The first who is who you hire.
Be careful who you hire. The people that are going to follow all of this, so you can get to where you want to go, but also keeping in mind the who? The you and me with the $5 at the counter,waiting for that great, perfect cup of coffee, or that latte specialty drink that's made the way we want it, every day. When you have great training and a great selection of people, and you have a great system, and you do that right, you end up with replication. You don't even really have to try hard. If you do the basics right, you get here [replication]. It's like working out, right? You do the basics right, you eat right, you get on the treadmill, you know, you don't say, necessarily, "I want to lose 20 pounds by tomorrow." You put yourself on a program and you will lose the 20 pounds over time, if you put yourself on a system and you follow it. It's the same thing. It's the same basics when running a company. So whether you've got a small website, and maybe you're selling custom t-shirts. Maybe you're just a service and you provide social media consulting to people. You still have, the first person you bring in, you have to train them to be just like you and build the systems so you can replicate that so that the next customer gets the same thing that you delivered to the first customer. And I think that's what people forget in the business of life and the going nuts of life, is that it's basic building blocks.
And that's where Starbucks took a step back to, and that's why Howard Schultz stepped back in, because he felt there was no one better to push and to carry the mission forward than the guy that hatched the mission in the first place. So he put himself back in the pilot's seat,he flew the plane, he closed the stores, and he moved it forward. Sometimes to go forward, you pause and take a step back. And it's all about replication. If you're too busy to pay attention to the basics that got you here, then you're never going to get there.
Strengths:
- Strong Market Position and Global Brand Recognition :
- Products of the Highest Quality
- Human Resource Management:
Starbucks is know for its highly knowledge base employees. They are the
main assets of the company and they are provided with great benefits like stock option, retirement accounts
and a healthy culture. This effective human capital management translates into great customer services. It was
rated 91st in the 100 best places to work for by Fortune Magazine.
- Goodwill among consumers due to Social Responsibly Initiatives:
- Diverse Product Mix:
- Use of Technology and Mobile Outlets:
- Customer base loyalty:
Weaknesses:
- Expensive Products:
- Self-Cannibalization through overcrowding:
By aggressive expansion and high saturation due to overcrowding
in the market leads to self cannibalization and diminishes long term growth targets of Starbucks. This is
happening especially in the United States where Starbucks operates 8078 stores.
- Over dependence in the United States market:
In line with self-cannibalization of the US market with 8078
stores, Starbucks generates a huge percentage of their total revenue from the US and this makes it very
sensitive to prospects of the US economy and growth.
- Negative large corporation image:
- American/European coffee culture clash with that of other countries:
You're going to end up some different place. So you replicate your people, you replicate your customer experiences, you replicate your product, and guess what? You replicate for the next thousand customers that which you delivered for the very first customer. Whether you're selling t-shirts, social media consulting, or you're building a multi-billion dollar coffee company.
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